In a Business Combination Where a Subsidiary Retains Its Incorporation

question 74

Multiple Choice

In a business combination where a subsidiary retains its incorporation and which is accounted for under the acquisition method, how should stock issuance costs and direct combination costs be treated?

• A) Stock issuance costs and direct combination costs are expensed as incurred.
• B) Direct combination costs are ignored, and the stock issuance costs result in a reduction to additional paid-in capital.
• C) Direct combination costs are expensed as incurred and stock issuance costs result in a reduction to additional paid-in capital.
• D) Both are treated as part of the acquisition consideration transferred.
• E) Both reduce additional paid-in capital.

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Definitions:

Fiduciary Duty

A legal obligation of one party to act in the best interest of another, typically within a trustee-beneficiary, advisor-client, or director-shareholder relationship.

UPA

The Uniform Partnership Act, a law in the United States that provides a basic framework for the operation of partnerships.

Full Capacity

The maximum level of output that a company can sustain to make a product or provide a service under normal circumstances.

Natural Person

An individual human being, as opposed to a legal entity such as a corporation or government.